Millions of Influential Dollars Later, Senate Passes Wall Street Reform

(This article is re-posted from OpenSecrets.org.)

After Democrats crafted 2,300 pages of legislation to tackle financial regulatory issues in the aftermath of the economic collapse that brought behemoths like AIG and Lehman Brothers to their knees, they were met with resistance from one of their own.

Sen. Russ Feingold (D-Wis.) spoke out against the bill championed by President Barack Obama because he thought it wasn’t strong enough to prevent another economic meltdown. And on Thursday, Feingold became the lone Democrat to vote against it. Feingold was in a position to stand up to Wall Street like few other senators.

Contributions from the finance, insurance and real estate sector account for just 3.75 percent of Feingold’s overall contributions over his career, according to research by the Center for Responsive Politics. Just two other senators elected to their seats have relied less on money from the financial sector: a wealthy self-funder and the Senate’s only self-identified socialist.

“Campaign contributions are very effective at slowing down reforms that need to be done from a public-interest perspective,” Lawrence Baxter, a law professor at Duke University, told OpenSecrets Blog as part of our “Crossing Wall Street” series last year.

Wall Street interests lobbied ferociously to limit the legislation’s effect on them, and they have invested in powerful members of both parties over the years. Long-standing relationships build rapport among these interests and legislators — legislators who may therefore be inclined to lend a sympathetic ear.

Contributions from the financial sector account for roughly 30 percent of all money collected by the campaign committee and leadership PAC of Senate Banking Committee Chairman Chris Dodd (D-Conn.), the bill’s chief sponsor in the Senate, the Center found — the most among all senators. Dodd’s home state of Connecticut is also home to many financial industry companies and workers.

On average, 12 percent of all campaign contributions and donations to leadership PACs since 1989 have come from the finance, insurance and real estate sector for senators who supported the Wall Street reform legislation, the Center found.

Contributions from these interests accounted for 14 percent, on average, of all contributions since 1989 to senators who opposed the bill.

While this gap is narrow for the broad finance, insurance and real estate sector, certain finance-related industries within the sector have given much more money to senators who resisted the bill.

According to the Center’s research, the political action committees and employees of commercial banks have, since 1989, given an average of 68 percent more to the committees of senators who opposed the Wall Street reform plan.

Insurance interests, meanwhile, have given 37 percent more to the bill’s opponents over the years. Special interests tied to finance and credit companies gave 25 percent more to senators who voted against the bill. And people and PACs associated with the real estate industry have contributed 12 percent more to the committees of senators who opposed the bill since 1989.

Only the securities and investment industry has given more to senators who favored the legislation. Since 1989, these interests, on average, have contributed 19 percent more to the committees of senators who voted to pass the legislation.

Here is a table summarizing the contributions since 1989 to senators’ leadership PACs and campaign committees from the finance, insurance and real estate sector — as well as various industries within that sector — broken out by the average “Yes” vote and average “No” vote:

To pass the bill, three New England Republicans joined 57 members of the Senate Democratic caucus.

Since the Senate first passed a version of the bill in May, Democrats lost the vote of Sen. Chuck Grassley (R-Iowa) but won over the support of Sen. Maria Cantwell (D-Wash.). Republican Sens. Scott Brown (R-Mass.), Susan Collins (R-Maine) and Olympia Snowe (R-Maine) all voted for the original version of the legislation as well as the conference committee report.

The final version of the legislation accomplishes many things.

It establishes new regulations and disclosure requirements for the investment products known as derivatives — which have been almost completely unregulated and played a substantial role in causing the nation’s economic crisis. It also creates new rules for credit rating agencies, including penalties for inaccurate ratings. Inflated evaluations of troubled investments also contributed to the nation’s economic meltdown.

The legislation seeks to end the notion of “too big to fail” by requires financial institutions to maintain plans for their dissolution, should they need to be dismantled. It will also prevent banks from making risky investments with federally insured dollars. And it will further require hedge fund and private equity fund advisers to register with the Securities Exchange Commission.

One of the most sweeping changes in the bill is the creation of a new federal watchdog for consumer financial protection within the Federal Reserve. This Consumer Financial Protection Bureau will have the power to prohibit financial products it deems unfair or predatory, and it will implement changes such as simplified mortgage loan and credit card disclosure documents.

The legislation additionally gives the Government Accountability Office the ability to perform a one-time audit of the Federal Reserve relating to all loans and financial assistance provided since Dec. 1, 2007, in response to the economic meltdown. It also ends the government’s Troubled Asset Relief Program (TARP), which was used to provide assistance to faltering financial institutions.

Moreover, at the end of 2012, it will put toward deficit reduction any unused money from the American Recovery and Reinvestment Act (Obama’s stimulus plan). The plan also gives shareholders a nonbinding “say on pay” vote on executive compensation and “golden parachute” retirement plans.

The House adopted the conference committee report in late June. According to the Center’s research, giving by finance-related industries to House members over the years has been similar to their giving to senators.

As with the Senate, the average percentage of donations from Wall Street interests out of all contributions received by House members was just two percentage points less for congressmen who voted in favor of the legislation compared to those who voted against it.

On average, 13 percent of all campaign contributions and donations to leadership PACs since 1989 have come from the finance, insurance and real estate sector for House members who opposed the Wall Street reform legislation, the Center found.

Contributions from these interests accounted for 11 percent, on average, of all contributions since 1989 to House members who supported the bill.

And contributions from people and PACs associated with commercial banks, insurers, the real estate industry and finance and credit companies have all favored congressmen who opposed the reform legislation. As in the upper chamber, only PACs and employees of the securities and investment firms favored supporters of the legislation since 1989.

The giving from these industries since 1989 are outlined in the following chart:

Many Republicans have argued that the legislation will kill jobs and that less regulation is needed, not more. Obama plans to sign the measure into law on Wednesday.